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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2019

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from            to           

Commission File Number 000-24435

MICROSTRATEGY INCORPORATED

(Exact name of registrant as specified in its charter)

Delaware

(State or other jurisdiction of incorporation or organization)

51-0323571

(I.R.S. Employer

Identification Number)

1850 Towers Crescent Plaza, Tysons Corner, VA

(Address of Principal Executive Offices)

22182

(Zip Code)

(703) 848-8600

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

 

Title of Each Class

 

Trading Symbol

 

Name of Each Exchange on which Registered

Class A common stock, par value $0.001 per share

 

MSTR

 

The Nasdaq Global Select Market

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

 

 

 

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

As of July 16, 2019, the registrant had 8,204,395 and 2,035,184 shares of class A common stock and class B common stock outstanding, respectively.

 

 


MICROSTRATEGY INCORPORATED

FORM 10-Q

TABLE OF CONTENTS

 

 

 

 

Page

PART I.

 

FINANCIAL INFORMATION

 

 

 

 

 

Item 1.

 

Financial Statements (unaudited)

1

 

 

 

 

 

 

Consolidated Balance Sheets as of June 30, 2019 and December 31, 2018

1

 

 

 

 

 

 

Consolidated Statements of Operations for the Three Months Ended June 30, 2019 and 2018

2

 

 

 

 

 

 

Consolidated Statements of Operations for the Six Months Ended June 30, 2019 and 2018

3

 

 

 

 

 

 

Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2019 and 2018

4

 

 

 

 

 

 

Consolidated Statements of Stockholders’ Equity as of June 30, 2019

5

 

 

 

 

 

 

Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2019 and 2018

6

 

 

 

 

 

 

Notes to Consolidated Financial Statements

7

 

 

 

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

19

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

34

 

 

 

 

Item 4.

 

Controls and Procedures

34

 

 

 

 

PART II.

 

OTHER INFORMATION

 

 

 

 

 

Item 1.

 

Legal Proceedings

36

 

 

 

 

Item 1A.

 

Risk Factors

36

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

49

 

 

 

 

Item 5.

 

Other Information

49

 

 

 

 

Item 6.

 

Exhibits

49

 

 

 

 


PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

MICROSTRATEGY INCORPORATED

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

 

 

 

June 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

 

 

(unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

261,497

 

 

$

109,924

 

Restricted cash

 

 

1,039

 

 

 

862

 

Short-term investments

 

 

313,349

 

 

 

466,186

 

Accounts receivable, net

 

 

129,144

 

 

 

171,359

 

Prepaid expenses and other current assets

 

 

22,259

 

 

 

30,068

 

Total current assets

 

 

727,288

 

 

 

778,399

 

Property and equipment, net

 

 

54,285

 

 

 

51,919

 

Right-of-use assets

 

 

89,631

 

 

 

0

 

Deposits and other assets

 

 

7,981

 

 

 

8,134

 

Deferred tax assets, net

 

 

20,535

 

 

 

17,316

 

Total assets

 

$

899,720

 

 

$

855,768

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable, accrued expenses, and operating lease liabilities

 

$

32,300

 

 

$

33,684

 

Accrued compensation and employee benefits

 

 

41,561

 

 

 

48,045

 

Deferred revenue and advance payments

 

 

176,786

 

 

 

176,540

 

Total current liabilities

 

 

250,647

 

 

 

258,269

 

Deferred revenue and advance payments

 

 

4,175

 

 

 

6,469

 

Operating lease liabilities

 

 

108,183

 

 

 

0

 

Other long-term liabilities

 

 

33,990

 

 

 

61,262

 

Deferred tax liabilities

 

 

36

 

 

 

37

 

Total liabilities

 

 

397,031

 

 

 

326,037

 

Commitments and Contingencies

 

 

 

 

 

 

 

 

Stockholders’ Equity

 

 

 

 

 

 

 

 

Preferred stock undesignated, $0.001 par value; 5,000 shares authorized; no shares issued or outstanding

 

 

0

 

 

 

0

 

Class A common stock, $0.001 par value; 330,000 shares authorized; 15,853 shares issued and 8,205 shares outstanding, and 15,837 shares issued and 8,552 shares outstanding, respectively

 

 

16

 

 

 

16

 

Class B convertible common stock, $0.001 par value; 165,000 shares authorized; 2,035 shares issued and outstanding, and 2,035 shares issued and outstanding, respectively

 

 

2

 

 

 

2

 

Additional paid-in capital

 

 

584,764

 

 

 

576,957

 

Treasury stock, at cost; 7,648 shares and 7,285 shares, respectively

 

 

(634,405

)

 

 

(586,161

)

Accumulated other comprehensive loss

 

 

(9,310

)

 

 

(10,217

)

Retained earnings

 

 

561,622

 

 

 

549,134

 

Total stockholders’ equity

 

 

502,689

 

 

 

529,731

 

Total liabilities and stockholders’ equity

 

$

899,720

 

 

$

855,768

 

 

The accompanying notes are an integral part of these Consolidated Financial Statements.

 

1


MICROSTRATEGY INCORPORATED

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

 

 

 

Three Months Ended

 

 

 

June 30,

 

 

 

2019

 

 

2018

 

 

 

(unaudited)

 

 

(unaudited)

 

Revenues:

 

 

 

 

 

 

 

 

Product licenses

 

$

20,121

 

 

$

19,292

 

Subscription services

 

 

7,104

 

 

 

7,584

 

Total product licenses and subscription services

 

 

27,225

 

 

 

26,876

 

Product support

 

 

72,978

 

 

 

73,676

 

Other services

 

 

17,534

 

 

 

20,050

 

Total revenues

 

 

117,737

 

 

 

120,602

 

Cost of revenues:

 

 

 

 

 

 

 

 

Product licenses

 

 

552

 

 

 

1,667

 

Subscription services

 

 

3,489

 

 

 

3,445

 

Total product licenses and subscription services

 

 

4,041

 

 

 

5,112

 

Product support

 

 

7,721

 

 

 

4,810

 

Other services

 

 

13,588

 

 

 

15,118

 

Total cost of revenues

 

 

25,350

 

 

 

25,040

 

Gross profit

 

 

92,387

 

 

 

95,562

 

Operating expenses:

 

 

 

 

 

 

 

 

Sales and marketing

 

 

48,273

 

 

 

50,978

 

Research and development

 

 

27,764

 

 

 

25,082

 

General and administrative

 

 

21,180

 

 

 

21,299

 

Total operating expenses

 

 

97,217

 

 

 

97,359

 

Loss from operations

 

 

(4,830

)

 

 

(1,797

)

Interest income, net

 

 

3,013

 

 

 

3,223

 

Other income, net

 

 

29,431

 

 

 

4,461

 

Income before income taxes

 

 

27,614

 

 

 

5,887

 

Provision for income taxes

 

 

7,220

 

 

 

1,059

 

Net income

 

 

20,394

 

 

 

4,828

 

Basic earnings per share (1)

 

$

1.99

 

 

$

0.42

 

Weighted average shares outstanding used in computing basic earnings per share

 

 

10,240

 

 

 

11,459

 

Diluted earnings per share (1)

 

$

1.98

 

 

$

0.42

 

Weighted average shares outstanding used in computing diluted earnings per share

 

 

10,310

 

 

 

11,493

 

 

(1)

Basic and fully diluted earnings per share for class A and class B common stock are the same.

 

The accompanying notes are an integral part of these Consolidated Financial Statements.

2


MICROSTRATEGY INCORPORATED

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

 

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

2019

 

 

2018

 

 

 

(unaudited)

 

 

(unaudited)

 

Revenues:

 

 

 

 

 

 

 

 

Product licenses

 

$

38,412

 

 

$

36,593

 

Subscription services

 

 

14,248

 

 

 

15,246

 

Total product licenses and subscription services

 

 

52,660

 

 

 

51,839

 

Product support

 

 

144,428

 

 

 

148,091

 

Other services

 

 

36,015

 

 

 

43,639

 

Total revenues

 

 

233,103

 

 

 

243,569

 

Cost of revenues:

 

 

 

 

 

 

 

 

Product licenses

 

 

1,071

 

 

 

3,878

 

Subscription services

 

 

7,087

 

 

 

6,694

 

Total product licenses and subscription services

 

 

8,158

 

 

 

10,572

 

Product support

 

 

14,788

 

 

 

9,606

 

Other services

 

 

28,577

 

 

 

30,047

 

Total cost of revenues

 

 

51,523

 

 

 

50,225

 

Gross profit

 

 

181,580

 

 

 

193,344

 

Operating expenses:

 

 

 

 

 

 

 

 

Sales and marketing

 

 

97,033

 

 

 

102,313

 

Research and development

 

 

55,979

 

 

 

48,642

 

General and administrative

 

 

43,784

 

 

 

43,471

 

Total operating expenses

 

 

196,796

 

 

 

194,426

 

Loss from operations

 

 

(15,216

)

 

 

(1,082

)

Interest income, net

 

 

5,579

 

 

 

5,257

 

Other income, net

 

 

28,835

 

 

 

2,867

 

Income before income taxes

 

 

19,198

 

 

 

7,042

 

Provision for income taxes

 

 

6,710

 

 

 

541

 

Net income

 

 

12,488

 

 

 

6,501

 

Basic earnings per share (1)

 

$

1.21

 

 

$

0.57

 

Weighted average shares outstanding used in computing basic earnings per share

 

 

10,283

 

 

 

11,453

 

Diluted earnings per share (1)

 

$

1.21

 

 

$

0.57

 

Weighted average shares outstanding used in computing diluted earnings per share

 

 

10,350

 

 

 

11,488

 

 

(1)

Basic and fully diluted earnings per share for class A and class B common stock are the same.

 

The accompanying notes are an integral part of these Consolidated Financial Statements.

3


MICROSTRATEGY INCORPORATED

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

 

 

 

Three Months Ended

 

 

 

June 30,

 

 

 

2019

 

 

2018

 

 

 

(unaudited)

 

 

(unaudited)

 

Net income

 

$

20,394

 

 

$

4,828

 

Other comprehensive income (loss), net of applicable taxes:

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

422

 

 

 

(3,892

)

Unrealized gain on short-term investments

 

 

232

 

 

 

0

 

Total other comprehensive income (loss)

 

 

654

 

 

 

(3,892

)

Comprehensive income

 

$

21,048

 

 

$

936

 

 

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

2019

 

 

2018

 

 

 

(unaudited)

 

 

(unaudited)

 

Net income

 

$

12,488

 

 

$

6,501

 

Other comprehensive income (loss), net of applicable taxes:

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

260

 

 

 

(2,452

)

Unrealized gain on short-term investments

 

 

647

 

 

 

0

 

Total other comprehensive income (loss)

 

 

907

 

 

 

(2,452

)

Comprehensive income

 

$

13,395

 

 

$

4,049

 

 

The accompanying notes are an integral part of these Consolidated Financial Statements.

 

 

4


MICROSTRATEGY INCORPORATED

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Class B

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

Class A

 

 

Convertible

 

 

Additional

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Common Stock

 

 

Paid-in

 

 

Treasury Stock

 

 

Comprehensive

 

 

Retained

 

 

 

Total

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Shares

 

 

Amount

 

 

Income (Loss)

 

 

Earnings

 

Balance at January 1, 2018

 

$

605,726

 

 

 

15,817

 

 

$

16

 

 

 

2,035

 

 

$

2

 

 

$

559,918

 

 

 

(6,405

)

 

$

(475,184

)

 

$

(5,659

)

 

$

526,633

 

Net income

 

 

1,673

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

1,673

 

Other comprehensive income

 

 

1,440

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

1,440

 

 

 

0

 

Share-based compensation expense

 

 

4,743

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

4,743

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

Balance at March 31, 2018

 

$

613,582

 

 

 

15,817

 

 

$

16

 

 

 

2,035

 

 

$

2

 

 

$

564,661

 

 

 

(6,405

)

 

$

(475,184

)

 

$

(4,219

)

 

$

528,306

 

Net income

 

 

4,828

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

4,828

 

Other comprehensive loss

 

 

(3,892

)

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

(3,892

)

 

 

0

 

Issuance of class A common stock under stock option plans

 

 

2,471

 

 

 

20

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

2,471

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

Share-based compensation expense

 

 

3,370

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

3,370

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

Balance at June 30, 2018

 

$

620,359

 

 

 

15,837

 

 

$

16

 

 

 

2,035

 

 

$

2

 

 

$

570,502

 

 

 

(6,405

)

 

$

(475,184

)

 

$

(8,111

)

 

$

533,134

 

Net income

 

 

12,699

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

12,699

 

Other comprehensive loss

 

 

(607

)

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

(607

)

 

 

0

 

Share-based compensation expense

 

 

2,972

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

2,972

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

Balance at September 30, 2018

 

$

635,423

 

 

 

15,837

 

 

$

16

 

 

 

2,035

 

 

$

2

 

 

$

573,474

 

 

 

(6,405

)

 

$

(475,184

)

 

$

(8,718

)

 

$

545,833

 

Net income

 

 

3,301

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

3,301

 

Other comprehensive loss

 

 

(1,499

)

 

 

0